Beyond Boundaries UMW Holdings Berhad. 2QFY2017 Results Briefing 19th September 2017

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Cameron Dalton
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1 Beyond Boundaries UMW Holdings Berhad 2QFY2017 Results Briefing 19th September

2Q17 IN REVIEW o Automotive and Equipment segments continue to be profitable.

suffered losses due to preoperating expenses incurred by the aerospace business.

o Continued weakening of the ringgit, intense competition and poor consumer demand have impacted earnings.

2 2Q17 IN REVIEW o Automotive and Equipment segments continue to be profitable. o Manufacturing & Engineering segment auto components and lubricants business were profitable - but suffered losses due to preoperating expenses incurred by the aerospace business. o Oil & Gas exit will nonetheless improve financial position and underpin the refocus on core businesses. o Continued weakening of the ringgit, intense competition and poor consumer demand have impacted earnings. o Group s results were dragged down by losses in both the listed and unlisted Oil & Gas segments, and loss on the demerger of the listed Oil & Gas subsidiary. 2

3 Leading in turbulent times 3

4 COMPETITION REMAINS TOUGH BUT OUR AUTOMOTIVE DIVISION IS GAINING TRACTION UMW TOYOTA MOTOR 1H17 (units) 1H16 (units) Variance (%) 2017 Target (units) % achieved for ,133 27, , PERODUA 1H17 (units) 1H16 (units) Variance (%) 2017 Target (units) % achieved for ,675 97, , Historically, the automotive industry performs much better in the second half of the year. 4

5 .AND OTHER BUSINESS HIGHLIGHTS Equipment - the industrial equipment sub-segment continues to perform well, particularly the leasing business. Operations in Malaysia and Vietnam contributed higher revenue and profit for 1H17, while Singapore operations continued to perform well. M&E Auto components and lubricants businesses were both profitable. Auto components business registered better than expected results for 1H17 due to strong contribution from KYB. Delivery of first fan case is on schedule for 4Q2017, as planned. Oil & Gas Listed Group - we completed the demerger of our listed Oil & Gas segment in July Moving forward, there will be no more losses from this segment that impacts the Group. We remain committed towards our goal in enhancing and building sustainable businesses 5

6 FINANCIAL HIGHLIGHTS FOR FIRST HALF OF 2017 PBT (RM'000) 1Q17 2Q17 1H17 CORE SEGMENTS Automotive 87,071 98, ,039 Equipment 39,548 32,196 71,744 M&E 3,098 (9,600) (6,502) Sub-total 129, , ,281 NON-CORE SEGMENTS O&G Listed - operating losses (104,908) (51,382) (156,290) - loss on demerger (126,914) (126,914) O&G Unlisted (15,031) (70,630) (85,661) Others 4,610 (62,134) (57,523) Sub-total (115,329) (311,060) (426,388) Total 14,388 (189,495) (175,107) 6

7 GROUP S CASH AND DEBT POSITION RM mil 2Q2017 1Q2017 Deposits, Cash and Bank Balances 1, ,445.7 Short Term Borrowings ,615.9 Long Term Borrowings 2, ,594.7 Total Borrowings 2, ,210.6 Total Equity 4, ,846.8 Debt/Equity ratio 64% 91% Our debt/equity ratio eased significantly following the demerger of UMW Oil & Gas Corporation Berhad UMW HOLDINGS BERHAD 7

8 Segmental Results (Continuing Operations) 8

9 SEGMENTAL RESULTS - AUTOMOTIVE 2Q % 2, ,260.3 Revenue 1H2016 vs 1H % 4, ,733.1 Revenue RM mil 2Q16 2Q % PBT RM mil 1H16 1H % PBT Automotive Results 01 The Automotive segment registered improved revenue of RM2,260.3 million for the second quarter of 2017, an increase of RM83.2 million or 3.8% compared to the corresponding quarter in Profit before taxation (PBT) was lower at RM99.0 million primarily due to the strengthening of the US Dollar. 03 Higher revenue for the segment was attributable to the surge in demand for Toyota Innova (launched in December 2016) and Toyota Fortuner. UMW Toyota Motor sold 17,439 units in 2Q17 compared to 17,392 in 2Q16 (+0.3%) 04 Perodua registered sales of 49,410 units for 2Q17 compared with 50,189 units in 2Q16 (-1.6%). Axia was the top selling model with 38% of total Perodua sales, while Bezza was second with 28%. 9

10 SEGMENTAL RESULTS - EQUIPMENT 2Q2017 Equipment Results +0.1% RM mil % 2Q16 2Q17 Revenue of the Equipment segment in the second quarter of 2017 stabilised at RM351.4 million. PBT for the quarter was at RM32.2 million, a drop of RM11.2 million compared with the same quarter of 2016 of RM43.4 million Revenue PBT The earnings declined amid shrinking margins and a highly competitive operating environment. 1H2016 vs 1H % RM mil 03 While there is a slowdown in the heavy equipment subsegment, the industrial equipment sub-segment continues to perform well, particularly the leasing business. Revenue -13.2% PBT 1H16 1H17 04 Industrial equipment contributed 64% of total revenue of Equipment segment in 1H17. 10

11 SEGMENTAL RESULTS M&E 2Q % Revenue 1H2016 vs 1H % >-100% PBT (10.0) RM mil 2Q16 2Q17 RM mil 1H16 1H17 M&E Results 01 The Manufacturing & Engineering segment recorded a revenue of RM153.9 million in the second quarter of 2017, marginally lower than the RM157.0 million reported in the same quarter of The lubricant business was affected by intense competition and registered lower revenue. 03 The broader segment registered a loss before taxation of RM9.6 million, as opposed to a PBT of RM10.9 million in the same quarter of >-100% The profitability was negatively affected by the pre-operating expenses incurred by the aerospace business. Revenue PBT (6.5) 11

SEGMENTAL RESULTS OIL & GAS (UNLISTED) 2Q2017 Oil & Gas (Unlisted) Results -25.1% 42.3 31.7 Revenue -55% PBT RM mil 2Q16 2Q17 01 The segment registered a revenue of RM31.7 million, a drop of RM10.

12 SEGMENTAL RESULTS OIL & GAS (UNLISTED) 2Q2017 Oil & Gas (Unlisted) Results -25.1% Revenue -55% PBT RM mil 2Q16 2Q17 01 The segment registered a revenue of RM31.7 million, a drop of RM10.6 million compared to the RM42.3 million in the same quarter of 2016 and a loss before taxation of RM70.6 million. 02 1H2016 vs 1H2017 (45.3) (70.6) Performance of the exploration sub-segment was affected by the continued low industry demand. The losses was mainly contributed by the cessation of drilling operations in Oman. Moving forward, we expect to incur minimum administrative cost in managing the complete closure of the operations there % RM mil 1H16 1H17 Revenue PBT (80.8) -6.1% (85.7) 12

13 Segmental Results (Discontinued Operations) 13

SEGMENTAL RESULTS OIL & GAS (LISTED) 2Q2017 +7.6% RM mil 139.9 130.0 2Q16 2Q17 Revenue 1H2016 vs 1H2017 (64.0) +19.7% PBT (51.4) Oil & Gas (Listed) Results 01 Revenue of RM139.

14 SEGMENTAL RESULTS OIL & GAS (LISTED) 2Q % RM mil Q16 2Q17 Revenue 1H2016 vs 1H2017 (64.0) +19.7% PBT (51.4) Oil & Gas (Listed) Results 01 Revenue of RM139.9 million for 2Q17 was higher than the RM130.0 million registered in the same quarter of 2016 by RM9.9 million or 7.6%. 02 The segment posted a lower loss before taxation of RM51.4 million in the second quarter of 2017 against the RM64.0 million recorded in the same quarter of Revenue % (132.4) PBT -18.1% RM mil (156.3) 1H16 1H17 Higher rig utilisation rate coupled with lower losses from oilfield services accounted for the improvement in financial performance for the second quarter ended 30th June The UMW Group also recorded a one-time loss on demerger of UMW Oil & Gas Corporation Berhad (UMW-OG) of RM126.9 million arising from the difference between the fair value/market value of UMW-OG dated 13 June 2017 and share of net assets of UMW-OG. 14

15 Moving Forward 15

16 KEY ACTION PLANS CONTINUED EXPANSION OF OUR CORE BUSINESS 01 ADDRESSING EXIT OF UNLISTED OIL & GAS SEGMENT MONETIZING LONG HELD, LAND ASSETS UMW HOLDINGS BERHAD 16

17 Continued expansion of our business UMW HOLDINGS BERHAD 17

18 CONTINUED EXPANSION OF OUR BUSINESS AUTOMOTIVE Enhancing and optimizing profitability EQUIPMENT Strengthening of heavy equipment segment with Komatsu M&E Continued expansion of core business and HVM ü GAME CHANGER UMW HOLDINGS BERHAD 18

19 AUTOMOTIVE - Enhancing and optimizing profitability 1 Addressing FOREX volatility impacting 2 earnings Action plans Improvising hedging methods Increase local content Vios from 51% a few years ago to 58% now. To focus increase on core models. To increase the number of CKD models currently 6 CKD models and 6 CBU models. Introduction of more new passenger car models from the new assembly plant in To expand after-sales operations to increase contribution from service, parts and body & paint operations. Addressing intense competition leading to higher A&P expenses Action plans Introduction of more new passenger car models from the new assembly plant in Strengthening brand image Toyota Gazoo Racing, Toyota C-HR exclusive preview. Streamlining operations and manpower optimisation at company level to reduce cost. Rationalization of distribution network focus on expanding dealerships UMW HOLDINGS BERHAD 19

20 EQUIPMENT - Strengthening of heavy equipment segment with Komatsu ASIA 01 Partnering directly with Komatsu Japan in equity JV to expand heavy equipment segment 02 Focus on construction industry given urbanization trends 03 JV will further strengthen and expand market penetration of Komatsu s products in Malaysia, Singapore, Myanmar and Papua New Guinea 04 Generating growth for the Heavy Equipment segment UMW HOLDINGS BERHAD 20

21 M&E - Continued expansion of core business and HVM 01 Lubricants 02 Autocomponents 03 HVM China operations o Sole supplier of premium lubricants to First Automobile Works (assembles Mazda, Red Flag, Besturn, Volkswagen and Audi models) o Recorded volume growth of more than 50% annually for the last few years o Market share less than 1%, huge potential for growth Malaysia operations o Continue to promote Pennzoil, Repsol and Grantt lubricants o Incorporated Toyota Production System and LeanAero in its production process to improve efficiency and eliminate waste o UMW is the largest distributor of Repsol lubricants outside Spain. o Current combined capacity is 100 million litres/year. To increase capacity by 30% by 1Q18. Added capacity for venture into other ASEAN countries between 2018 and o KYB-UMW has increased its market share to 54% in 2016 compared to 49% in 2015 o Aggressively expanding into both OEM and REM segments o Exports to 38 countries o Plans to increase manufacturing capacity by 15% - 20% over the next 5 years. o To deliver the first fan case to Rolls- Royce by Q42017 UMW HOLDINGS BERHAD 21

22 Addressing exit of Unlisted Oil & Gas segment UMW HOLDINGS BERHAD 22

23 ADDRESSING EXIT OF UNLISTED OIL & GAS SEGMENT No. of Assets Target 2017 Target 2018 Oil & Gas unlisted assets o 16 assets to exit. Drilling & Exploration OCTG & Line Pipe Fabrication Trading and Oilfield services Ceased operations, to dispose assets 2- Active negotiations 1- Offer received, to exit 2- Active negotiations 2 Offer received, final negotiations 1 Phased out exit (Phase 1 completed, Phase 2 by year end) 1 - Offer received, finalisation 1 - Restructure and exit 1 To cease operations - 2 active negotiatio ns - 2- exit o o o o o Target to complete progressive exit by Likely to incur operational losses given limited income. Until exit, numerous mitigation strategies deployed to minimise operational losses such as ceasing operations. Various exit strategies considered including outright sale. In active negotiations with interested parties to dispose our equity in several companies. Total 16 UMW HOLDINGS BERHAD 23

24 Monetizing long held land assets UMW HOLDINGS BERHAD 24

25 MONETIZING LONG HELD LAND ASSETS o Serendah Land 861 acres o Opportunity exist for unlocking of value. o Part of the land currently housed the Rolls-Royce fan casing project which acts as a catalyst for further development of Serendah. UMW Aerospace Sdn. Bhd s site LOW-DENSITY RESIDENTIAL COMMUNITY COMMERCIAL CORE WITH INTEGRATED CONNECTION TO LANDSCAPE HIGH-END, LOW-DENSITY RESIDENTIAL COMMUNITY AEROSPACE INDUSTRY CLUSTER AUTOMOTIVE INDUSTRY CLUSTER MIXED-USE & RESIDENTIAL LOOP ROAD MEDIUM-DENSITY AFFORDABLE HOUSING COMMUNITY UMW HOLDINGS BERHAD 25

26 Prospects for 2017 UMW HOLDINGS BERHAD 26

CURRENT PROSPECTS - 2017 Automotive Equipment Challenging and to remain competitive Expected to be stable in the next quarters Softer consumer sentiment and intense competition Stringent lending

27 CURRENT PROSPECTS Automotive Equipment Challenging and to remain competitive Expected to be stable in the next quarters Softer consumer sentiment and intense competition Stringent lending guidelines Expect lower margins for auto manufacturers and distributors Heavy Equipment expected to be actively driven by construction sector Steadfast demand anticipated for Industrial Equipment M&E Oil & Gas (Unlisted) Positive outlook Oil price is on the upward trend Shock absorber business remains sustainable given high market share in the OEM and REM market especially exports Lubricants expected to contribute positively Rolls-Royce project is progressing as scheduled Oil prices are expected to remain low but volatility may have subsided with Brent crude oil price hovering above US$50 per barrel UMW is actively implementing action plans towards exit from this segment UMW HOLDINGS BERHAD 27

28 Conclusion 28

29 o 2017 to be a turnaround and recovery year o Strong refocusing on the three core businesses (automotive, equipment, manufacturing & engineering) for better returns o Ongoing disposal of Unlisted Oil &Gas assets UMW HOLDINGS BERHAD 29

30 THANK YOU UMW HOLDINGS BERHAD 30

UMW REGISTERS PRE-TAX LOSS OF RM189.5M IN 2Q17

Quarterly Investor Update UMW REGISTERS PRE-TAX LOSS OF RM189.5M IN RM million YoY(%) Profit /(Loss) Before Taxation (189.5) 44.8 >(100) EXECUTIVE SUMMARY financial highlights The Group registered a revenue